Assembly discusses credit downgrade

Body recommends $4 million tax fund corrective measure

The City and Borough of Juneau was caught up in Moody’s recent reevaluation of the credit ratings of municipalities across the nation. Since the 2008 economic collapse, some municipalities have defaulted and the city received a downgrade as the credit worthiness evaluator updated its books. At a special meeting Monday night, the Assembly discussed the markdown that City Manager Kim Kiefer had previously described as a move from an ‘A’ grade to an A-minus score.

“It wasn’t news that we wanted to get but it also wasn’t a surprise,” Kiefer told the Assembly Monday night.

The downgrade wont affect Juneau’s borrowing as the city and borough bonds through the Alaska Municipal Bond Bank, city Finance Director Craig Duncan said.

“Last time we’ve had bonds of our own (was) in 2008,” Duncan said. “We rely on (the Bank’s) bond rating, not our own.”

Duncan said it is financially prudent for the city to use the bond bank for a variety of reasons. The bond bank pays additional costs and gives can give the city a slightly better rate, he said. However, “you have to march to their schedule,” Duncan said. “Then we could have some timing issues. Other than that there is not particular reason for us to go out on our own.”

Duncan said Moody’s considers Juneau as a secure risk, placing it in the AA category. Triple ‘A’ bonds are considered the most creditworthy, with ranks declining through nine separate levels down to ‘C.’ Within each grade, Moody’s uses the numbers 1, 2 and 3 to further refine its evaluations, with 1 being the most creditworthy within a level. Juneau’s recent slip dropped the city from an Aa2 grade to Aa3.

Moody’s cited the municipality’s shrinking reserves as a major factor in its downgrade. Duncan said that going into year 2011 and 2012, the city used its reserve funds to balance its budget. This was based on historic trends in economic recoveries, he said. However, he said, the economy did not recover as fast as expected and the city exhausted its reserves.

Duncan said Moody’s recommended the city raise its tax fund reserves by nearly $4 million by 2014. This level of savings is contingent on the approval of an increase in mil rates to from the current 10.55 to 10.85.

“Our target was to keep it at 11 or below,” Duncan said.

Bob Bartholomew. Juneau’s new director of finance, said a mayor-appointed tax fund task force was given three tasks. Should the city increase its fund reserves? If an increase is required, by what amount? And in what circumstances should the reserve be used?

The task force recommended a reserve of around $16 or $17 million — enough to pay the city’s bills for two months.

The increased funds should only be used on out-of-the-ordinary events, “Items you can’t project,” Bartholomew said.